Protectionism is alive, well and growing fast

There was a discussion on BBC Two's Newsnight on Thursday night in which two of the panel of "experts" on the world economy, Jim O'Neill, chairman of Goldman Sachs asset mananagement, and the Economist's Zanny Minton Beddoes, expressed some satisfaction in the supposed fact that the economic crisis of the last four years hadn't resulted in a steep rise in protectionism. This they took as evidence that despite the crisis, the building blocks for global growth based on increased trade were still intact.

This is indeed the received wisdom, but it is in fact very far from being the case. It is perfectly true that there hasn't as yet been anything that resembles the famous Smoot-Hawley Tariff Act of 1930, widely but wrongly cited as a major cause of the Great Depression, yet there has been a very substantial rise in protectionism.

According to Global Trade Alert, which monitors trade tensions, protectionism is actually at its highest level since the immediate aftermath of the Lehman crisis in 2009. The reason it has gone largely unnoticed is that protectionist measures tend to take new and ever more subtle forms, many of which are not caught by existing World Trade Organisation prohibitions. In any case, take a look at this article from the University of St Gallen's Professor Simon Evenett.

Here's an exert.

The 10th Global Trade Alert report documents several factors that together imply that the protectionist threat to the world trading system is probably as significant as it was in the first half of 2009, when such concerns were last at their peak. In our last report, published in July 2011, concerns were raised that a deteriorating macroeconomic climate would lead to greater protectionism. This fear has come to pass. The initial reports of the quantum of protectionism in the third quarter of 2011 are as bad as comparable early reports on protectionism in the first half of 2009. Less than a third of these protectionist measures taken are tariff increases or trade defence measures; worse, some of these measures have been taken by large trading nations and affect many sectors or trading partners. Recent protectionism cannot be dismissed as a large number of small pinpricks.

Since July 2011, new protectionist measures have outnumbered liberalisating measures by nearly three to one. The vast majority of these initiatives are not traditional trade defence measures or tariff increases, but new forms of protectionism such as discriminatory investment measures, export subsidies, discriminatory bailouts, wage subsidies, and so on. It won't surprise to learn that China is one of the major offenders. As pressure on governments to save jobs and protect local industries grows, so do the number of protectionist measures.

Protectionism isn't dead at all. It's merely been reincarnated in different form that circumvents the established rules.